‘Brazen Fraud’ Alleged at Dendreon Corp.

SEATTLE (CN) – Directors of Dendreon Corp. committed “brazen fraud” by dumping $85 million of their own shares at inflated prices while falsely claiming its expensive cancer drug Provenge was “completely sold out,” shareholders claim in court. Investors sued Dendreon and its top three officers, CEO Dr. Mitchell H. Gold, COO Hans E. Bishop, and CFO Gregory T. Schiffman, in Federal Court. “The revelation of the company’s fraud was devastating, erasing $3.5 billion from Dendreon’s market capitalization in a single day,” the complaint states. “Unlike defendants, who were able to sell substantial holdings of Dendreon stock before the fraud was revealed, the company’s unsuspecting shareholders suffered crippling losses. As TheStreet.com put it, Gold had turned out like other Chief Executive Officers who had ‘hone[d] the fine craft of investor bamboozlement.'” Dendreon’s only FDA-approved product is Provenge, a prostate cancer treatment, the shareholders say in the complaint. “From April29, 2010 through August 3, 2011 (the ‘Relevant Period’), defendants repeatedly touted the strong demand for Provenge, which the Company claimed was so strong that it was overwhelming the company’s ability to meet the demand,” according to the complaint. “At numerous investor conferences, on conference calls and in its filings with the U.S. Securities and Exchange Commission (‘SEC’), defendants emphasized the ‘very strong demand,’ the ‘incredibly high demand’ and the ‘no shortage of end-patient demand’ that existed for Provenge, which demand, according to the Company, purportedly was ‘exceeding our ability to supply the market’ and was resulting in ‘completely sold out capacity’ and ‘substantial waiting lists’ for treatment with Provenge. To underscore their statements, defendants followed up with bullish financial guidance to investors, projecting revenues of $350 to $400 million from Provenge in 2011.” But the shareholders say the individual defendants knew the rosy statements were “completely false” and were receiving weekly reports from sales managers warning of low sales. “As has now been revealed, these statements to investors were completely false. Furthermore, defendants knew at all times that these statements were false,” the complaint states. “As confirmed by former Dendreon employees, the company’s regional sales managers repeatedly warned defendants at weekly meetings that defendants’ statements had no basis in fact, and that the real demand being observed in the field was running at a much lower rate. Not only were these warnings communicated verbally at numerous meetings, the evidence backing these warnings was provided to defendants in the form of various internal reports that were disseminated to all members of senior management, including defendants Gold, Bishop and Schiffman.” But the defendants continued to issue optimistic statements about Provenge, while dumping their own shares at huge profits, the shareholders claim. Gold sold his shares for $35 million, according to the complaint. “All the while that they were disseminating these false statements to unsuspecting investors, defendants themselves were busily offloading their own holdings of Dendreon stock. During the relevant period, Dendreon’s officers and directors realized over $85 million in proceeds from insider stock sales. Defendant Gold, Dendreon’s chief executive officer, personally reaped over $35 million from the sale of Dendreon stock during the relevant period, including millions from sales made just weeks before the fraud was revealed to investors.” Shareholders claim the defendants were forced to “come clean” on Aug. 3, 2011, after close of trading, and admit the quarterly growth for Provenge would be “modest” at best. Dendreon also disclosed that demand for the drug had been hurt by physicians’ concerns about reimbursement and that the company was slashing its workforce by 25 percent, according to the complaint. Lead plaintiff Dr. Christoph Bolling and 23 other shareholders seek disgorgement and damages for fraud, negligent misrepresentation, and violations of securities and consumer laws. They are represented by Christina Haring-Larson with Slinde Nelson & Stanford.